The Pros and Cons of Offering Discounts and Incentives in a Tough Economy

August 30, 2017 Off By

Salespeople are faced with the daily choice of short-term pain versus long-term gain. Rather than relying on confidence in their ability to effectively communicate the full value of their products and services, inexperienced salespeople will begin to offer discounts, price concessions and incentives in order to entice their prospects into a closed sale. If they succeed, they have created a customer with expectations. Every time they approach the customer for repeat business, the customer will demand a new perk, a new gift, a new instance of “something for nothing.” Unless the salesperson locks in the second sale in the same moment as the first (such as time-limiting a discount of 30 days against a long-term agreement in which the cost reverts to full price), they are playing a game that they will never win.

There are times in which these tactics are appropriate, and there are others that add up to a simple admission by the salesperson that they lack the skill or mental stamina to guide their prospect through the sales cycle.

The acquisition and ongoing nurturing of customers requires a series of skills that are usually learned by trial and error. The professional salesperson must possess a deep, almost fanatical interest in human psychology and what “makes people tick,” also known as “why they buy.” Every sales encounter is a lesson. Each lesson, accumulated over time, is like the single drops of water that form a rock. One lesson, one drop at a time, extended over years, results in a salesperson on the road to mastering their craft.

Just as you learn to ride a bike or a horse by getting on, falling off, getting up, brushing yourself off, and getting right back on again, you learn the appropriate and inappropriate use of discounts and incentives in the sales process by making money or losing money.

A nation-wide fast food restaurant chain recently offered a bold promotion. They mailed a full-color flyer to residents with over $25 worth of coupons for their food. Half of the coupons offered as much as a 50% discount for a meal, while others were of the “two for one” variety. In addition to the discounts, they announced a date on which customers could come to the restaurant for a free meal: two pieces of chicken with two tortillas and salsa.

On the day of the promotion, the parking lot at my local restaurant was full at opening time, with drivers circling the lot hoping for a space. The line for ordering extended to the door. Some customers simply took advantage of the free food and ordered no additional items. Others used coupons from the flyer and purchased food as well.

Was this promotion successful? A percentage of people showed up for the free food and will not return unless a similar offer is made in the future. A second group consisted of regular or semi-regular customers who might have made an extra, unplanned trip to take advantage of the free food. The third group consisted of the “sitting on the fence” or “unaware” customers…those who either did or did not know of the restaurant previously and had never tasted the food.

The promotion was successful in two very significant ways. First, it was a gesture that appealed to the pocketbooks of the community at a very challenging time in the economy. While some people could obviously afford the food and simply enjoyed getting it for free, others might have gone a while between meals. Second, it issued a challenge to the restaurant’s competitors to follow their lead. One direct competitor, in fact, accepted the challenge by offering a similar (but more limited) promotion during the same week.

The success of the promotion also relied on the fact that it was a numbers game. There is a significant difference between a one-on-one negotiation with a single client and a “loss leader” day in which “X” amount of product will be offered at an “X” percentage discount in order to build public awareness and strengthen the brand. The cost of the promotion becomes marketing overhead, a legitimate business expense, so there really is no way to “lose” money. The immediate issue at hand is the profit margin resulting from the promotion, but there is also a “ripple effect” of new business that might not have been generated without it.

With any customer relationship, you must examine the long term. There are customers whose primary interest lies in paying the lowest possible price, often in combination with something that is clearly labeled as “free” (even if the actual cost is rolled into the overall price). There are others who make buying decisions based on value, as well as an ongoing relationship with a reputable vendor. The majority of customers will fall between these two extremes, and it is the responsibility of the salesperson to be somewhat clairvoyant, to look into the crystal ball and make an educated assumption regarding the state of the relationship in six months, a year, five years. If the salesperson becomes a dog chasing their tail in order to consistently appease the customer’s desire to receive “something for nothing,” they have failed in their greater task of creating a stable and profitable customer.

There are a number of ways to include discounts and incentives as rewards and gestures of appreciation to long-term customers. You can also provide things of value which cost nothing, such as articles that are directly relevant to the goals and challenges that your customers are facing. Focus on the words “trusted business partner” and realize that unless you sell a completely commoditized product…something which is used and discarded and replaced by new product in an ongoing cycle…your customers remain in a relationship with you because of your expertise and the investment you’ve made in their success.

Never offer a discount or incentive to “tip the scales” in order to close a sale. Sales greatness cannot be achieved with “hit and run” tactics. Focus on providing value, building relationships, and showing appreciation to your loyal customers. It is the only path to long-term sales success.